The European Central Bank (ECB) announced on Thursday (April 17) that it will cut its main interest rate from 2.5% to 2.25%, marking the seventh rate cut in the past year. The official statement noted that this move aims to address the uncertainty in the current global trade environment and reduce potential pressures on the Eurozone economy.
The ECB stated that while the Eurozone has the “ability to withstand global impact,” “with escalating trade tensions, the economic growth outlook has deteriorated.”
ECB President Christine Lagarde emphasized during a press conference in Frankfurt that the current economic outlook is “shrouded in extreme uncertainty,” and decisions will be made “flexibly based on the situation at each meeting.”
She said, “Now more than ever, it is crucial to rely on data to make assessments.”
US President Donald Trump announced earlier this month a 90-day suspension of a new round of tariffs on most trade partners, including the European Union, but excluding China. The 20% tariffs currently applied to European goods are also suspended during this period. Lagarde pointed out that as this measure is still being implemented, the ECB may not have sufficient data to fully assess its impact in the next meeting.
Last month, Lagarde had stated that if the US were to impose a 25% tariff on EU goods and trigger retaliatory measures from the EU, Eurozone growth could be revised down by 0.5 percentage points, nearly wiping out previous growth expectations. She also noted that this estimate may still be too optimistic if investor, business, and consumer confidence is further diminished.
Currently, the ECB has set interest rates in the range of 1.75% to 2.25%, viewing this as a “neutral range,” meaning it has neither a stimulating nor restricting effect on economic activity.
According to a Reuters survey, the majority of economists expected the interest rate to be lowered to 2.25% at this meeting, hovering at the upper limit of the aforementioned neutral range.
Lagarde also mentioned that the strength of the Euro could exert downward pressure on inflation. Several banks have already revised down their inflation forecasts, including a reduction in the estimated inflation rate for 2025 to 1.9%, below the ECB’s 2% target.
In recent financial market fluctuations, the Euro has appreciated by about 9%, reaching a historical high in its trade-weighted exchange rate. Meanwhile, energy prices have fallen, Eurozone economic growth has slowed, and China, as a major target of US tariffs, may redirect some production capacity towards Europe, further impacting the local market.
CNN reported that consultancy firm KPMG’s Chief Economist Yael Selfin expects the ECB to cut interest rates three more times this year.